The three major credit reporting companies – Equifax, Experian, and Transunion – are not the benevolent, altruistic companies they portray themselves to be. They are in business to sell consumer information they possess to different permissible entities, be they banks, credit card companies, mortgage lenders, auto dealers, apartment complexes, insurance companies, future employers, anyone who would like to see how you or any consumer manages their finances.
Consumer Friend or Foe?
The job market may be growing at the fastest clip in 15 years, but many consumers are still trying to heal nasty wounds to their credit reports. According to a report released by the Corporation of Enterprise Development (CFED), the majority (56%) of consumers have subprime credit scores. As a result, these consumers are often locked out of the lending markets. And if they are borrowing, chances are they’re missing out on the lowest rates being offered to consumers with stronger credit. The report is a reminder that even as many Americans are returning to work and earning steady paychecks for the first time in a while, repairing credit takes time. Late payments and delinquent accounts that are sent to collections, such as defaulted credit cards or a foreclosure, can stay on your credit report for up to seven years. Bankruptcy filings can stay on there for up to 10 years. And in a benevolent financial world the Credit Reporting Bureaus would help, in any way possible, consumers rise up from the sub prime bondage they find themselves in.
But it behooves the Reporting Bureaus to keep as many of their accounts (consumers) below average as these accounts make them the most money. On average, the Credit Bureaus make $145 per account per year. 220 million Americans are “credit scorable.” The Credit Reporting industry is a multi-billion-dollar enterprise, and they guard that enterprise very jealously. Now while the Bureaus cannot actively manipulate a consumer report to suit its needs, they do nothing about investigating the accuracy of an item on that report unless queried too.
Credit Reporting Law Protects Consumers.
And that’s where the Fair Credit Reporting Act comes to play. The FCRA is a law that gives consumers certain rights when companies include your credit report in a decision-making process. The text in the FCRA clearly states that any item found to be “inaccurate” or “incomplete” or that “cannot be verified” must be removed (or corrected where appropriate). As a consumer, you have a right to make sure that every item on your credit report is:
Several studies since the early 1990s have documented sloppy credit bureau practices that lead to mistakes on credit reports—for which consumers pay the price. In 2004 The National Association of State (PIRGs) conducted a study in which they asked adults in 30 states to order their credit reports and complete a survey on the reports’ accuracy.
Key findings include:
♦ Twenty-five percent (25%) of the credit reports surveyed contained serious errors that could result in the denial of credit, such as false delinquencies or accounts that did not belong to the consumer;
♦ Fifty-four percent (54%) of the credit reports contained personal demographic information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect;
♦ Twenty-two percent (22%) of the credit reports listed the same mortgage or loan twice;
♦ Almost eight percent (8%) of the credit reports were missing major credit, loan, mortgage, or other consumer accounts that demonstrate the creditworthiness of the consumer;
♦ Thirty percent (30%) of the credit reports contained credit accounts that had been closed by the consumer but remained listed as open;
♦ Altogether, 83% of the credit reports surveyed contained either serious errors or other mistakes of some kind.
Comprehensive Reporting Reforms Needed.
States have long taken the lead in protecting consumers’ privacy and ensuring the accuracy of credit reports. In 1992, Vermont was the first state to pass a law providing a free annual credit report on request, followed by Colorado, Georgia, Maine, Maryland, Massachusetts, and New Jersey. California adopted other comprehensive reforms in 1994 and later became the first state to require disclosure of credit scores. Congress eventually followed the states’ lead, adopting some credit reporting reforms in 1996 and criminalizing identity theft in 1998. In December 2003, Congress passed the Fair and Accurate Credit Transactions Act (FACT Act). With the FACT Act, the financial industry won its primary goal: permanent preemption of stronger state credit and privacy laws. The FACT Act also included several modest consumer reforms, borrowing from state laws already enacted, including the right to a free annual credit report on request. Although these consumer reforms came at the unacceptable price of a state’s right to protect its consumers, the law includes some provisions designed to enhance the accuracy of credit reports. Despite the recent federal action, we need to do more to protect our financial privacy and more importantly ensure the accuracy of credit reports. We need to stay as educated as possible about our personal credit profile, and how the Credit Bureaus treat those profiles.
In the final analysis, we are our first, best advocates.
Rob Ludwig offers proven methods of repairing your credit. His highly acclaimed book HT Credit Solution has recently been re-published on Amazon.com. You can review testimonials of people who have successfully completed his credit score improving program on his website at http://robludwig.com
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